Question

Suppose that you would like to put money in an account today to make sure your younger sibling has enough money in 10 years to buy a car. If you would like to give your sibling $20,000 in 10 years, and you know you can get 5% interest per year from a savings account during that time, how much should you put in the account now

Answer 1

The amount to be deposited today = $12,278.26

Step-by-step explanation:

The amount to be deposited in the account is the present value of the 20,000 future value discounted at 5%.

The formula is given below

PV = FV × (1+r)^(-n)

PV - Present Value, r- interest rate, n- number of years

PV = 20,000 × 1.05^(-10)

The amount to be deposited today = $12,278.26